Endogenous debt crises
We distinguish two types of debt crises: those that are the outcome of exogenous shocks (to productivity growth for instance) and those that are endogenously created, either by self-fulfilling panic in financial markets or by the reckless behavior of "Panglossian" borrowers. After Krugman, we characterize as "Panglossian" those borrowers who only focus on their best growth prospects, anticipating to default on their debt if hit by an adverse shock, rationally ignoring the risk of default. We apply these categories empirically to the data. We show that, taken together, endogenous crises are powerful explanations of debt crises, more important for instance than the sheer effect of growth on a country's solvency.
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- Dany Jaimovich & Ugo Panizza & Camil F.S. Campos, 2006.
"The Unexplained Part of Public Debt,"
Research Department Publications
4449, Inter-American Development Bank, Research Department.
- Gaston Gelos & Guido Sandleris & Ratna Sahay, 2004.
"Sovereign Borrowing by Developing Countries: What Determines Market Access?,"
IMF Working Papers
04/221, International Monetary Fund.
- Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
- R. Gaston Gelos, Ratna Sahay and Guido Sandleris, 2008. "Sovereign Borrowing by Developing Countries: What Determines Market Access?," Business School Working Papers 2008-02, Universidad Torcuato Di Tella.
- Chamon, Marcos, 2007. "Can debt crises be self-fulfilling?," Journal of Development Economics, Elsevier, vol. 82(1), pages 234-244, January.
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